Knowing What to Wear

The content of Mark Zuckerberg’s wardrobe made headlines earlier this year http://bit.ly/1Rzr2Zb and while I think it falling well short of psychopathic tendencies, I confess that I do find it, well, a bit weird. However, just as it is easy to dress in the morning with little choice, sometimes, severely restricting your investment universe can make life much simpler without making much impact on the return potential.

By and large, I prefer not to have back to back meetings with fund managers. Recently I did just that but it delivered a fascinating contrast in emotional experience. Both funds came from the same shop, both were global equity in remit and both the managers followed an entirely different investment philosophy.

One manager considers pretty much any type of stock, if you like he chose from a wardrobe of clothes spanning across the colour spectrum from red to violet. Every day he would have to decide what would work in the market. He uses a wide array of indicators to help inform this decision, but in the current cloudy market environment, some of these indicators are conflicting and others of little relevance. I don’t know how much angst the manager suffers while deciding how to position the portfolio but I certainly felt anxious while listening to his deliberations.

In contrast, the other manager operates with far less flexibility and will only consider stocks of a certain hue. He knows that his style might not always be in fashion with the markets but he knows that over time he will more often be à la mode than not. This makes constructing the portfolio far simpler and currently, with so many of the type of stocks he typically likes beyond his budget, the range of options for his portfolio is even more limited than usual. The meeting felt so much more relaxed than the first.

Both managers have performed well but the second one had fared better. Last year, he didn’t quite find the full set of teeth but he did at least manage to hold the FAGs from the Facebook-Amazon-Netflix-Google quartet. His investment approach had led him to consider these stocks in detail and recognise the competitive advantages that these businesses are developing. It often pays to be in the right place, at the right time and dressed appropriately.

I wrote recently about the importance of investment philosophy http://bit.ly/1pkdN5x. Knowing where you stand really does make life dealing in markets, and with clients, so much easier.